Whither the intervention funds?

Despite several billions of naira to stimulate growth, the industrial sector remains in the doldrums. This has put the Bank of Industry (BOI), the managers of the intervention funds, under pressure from industrialists, most of who complain that difficulty in accessing the funds from BoI has resulted in curtailing the impacts of the funds. The bank disagrees, flaunting its records, reports Assist. Editor, Chikodi Okereocha.

The Bank of Industry (BOI) prides itself as Nigeria’s oldest, largest and most successful development financing institution. Reconstructed in 2001, BoI set for itself the mission to transform Nigeria’s industrial sector and integrate it into the global economy by providing financial and business support services to existing and new industries. It is, therefore, hardly surprising that the bank is charged with administering the several sector-specific intervention funds and schemes introduced by the Federal Government in the hope of breathing life into dead or dying key sectors of the economy particularly the industrial sector acknowledged as holding the key to sustainable economic growth.

At the last count, no fewer than 13 of such intervention funds, amounting to hundreds of billions of naira have been introduced, targeting one segment of the industrial sector or the other. Some of the special intervention funds that raised the adrenalin of industrialists and manufacturers include the Federal Government’s N100 billion Cotton Textile and Garment (CTG) Fund, for the revitalisation of the CTG industry along the entire value chain; N10 billion Rice Intervention Fund, to ensure Nigeria attains self sufficiency in rice production; and Africa Development Bank (AFDB) $500 million Line of Credit, for the development of export-oriented Small and Medium Enterprises (SMEs).

Others are: Federal Ministry of Women Affairs and Social Development (FMWASD) N90 million Business Development Fund, to provide soft loans to women entrepreneurs; Central Bank of Nigeria (CBN) N220 billion Intervention Fund, for Micro, Small and Medium Scale Enterprises (MSMEs); BOI N5 billion Cottage Agro Processing (CAP) Fund, for the establishment of small-scale plants or mini mills to process Nigeria’s agricultural products; National Automotive Council’s N16.91 billion Fund, for the development of the automobile industry sub-sector; and Federal Government’s N2 billion Sugar Development Council Fund, to ensure Nigeria attains self sufficiency in sugar production by 2020.

The expectation was that government through BOI would leverage these special intervention funds to address the dearth of long term investible funds required by manufacturers and industrialists particularly SMEs. This would ultimately transform the industrial sector into a vibrant and globally competitive sector capable of guaranteeing bountiful returns to all stakeholders and the economy in general. However, the way and manner BOI has been managing and administering these funds appear to have left sour taste in the mouths of operators and stakeholders in key sectors of the economy. Citing inability to access the funds with ease because of bureaucracy and bottleneck in BOI’s administration of the funds, some of them argue that the special intervention funds have made little or no impact on the industrial sector.

For instance, observers say that with a whopping N100b, a generous interest rate of six per cent, and a repayment period of five years, the CTG industry along the entire value chain should have since been bustling with manufacturing activities. Unfortunately, this has not been the case. So far, only about 20 textile firms have managed to access the loan, according to the Director-General, Nigeria Textile Manufacturers Association (NTMA), Mr. Jaiyeola Olarewaju. He also disclosed that very few cotton and garment firms have taken the loan, which sought to revitalise the CTG industry along the entire value chain, including textile, cotton, and garment production.

President, National Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN), Comrade Oladele Hunsu, painted a more disturbing picture of the CTG industry, lamenting that “We are stagnated now; the problem goes beyond money.” Comrade Hunsu told The Nation that although, there was a significant improvement in the industry, as 1, 500 jobs have been saved through the intervention, efforts to put the industry back on track have been frustrated by government’s policy inconsistency. He said before the introduction of the fund, government had banned the importation of textiles into the country, which was why operators hailed the initiative and also embraced it.

But the same government, he said, pulled the rug from under the feet of the operators when it again unbanned the importation of textiles, thus opening the floodgate for cheaper textiles to come in from Asia. Olarewaju agrees with him, noting that the fund, introduced in 2010, recorded some noticeable improvements in the fortunes of the CTG industry such as the re-opening of United Nigeria Textiles Limited in Kaduna, and Arewa Textiles, which indicated interest to come back. Besides, the industry, he said, recorded relatively less factory closures and redundancies, as some of the 20 textile companies who took the loan deployed it either as working capital or used it to refurbish their machines.

Olarewaju however, regretted that those who took the loan got their fingers burnt when they discovered, shortly after accessing the loan, that over 80 per cent of the market has been taken over by cheap imports from Asian countries. According to him, the influx of foreign textiles into the country made locally produced textiles less competitive, as they are often costlier than imported or smuggled ones. The result, he said, was that other companies yet to access the loan chose to avoid it. Most of them became afraid that they may not be able to repay the loan considering the prevailing unfriendly operating environment particularly with regards to lack of infrastructure.

Hunsu says the situation is regrettable considering the fact that the real sector rather than the service sector remains the real growth diver. He said the textile industry is the second largest employer of labour after government, which is why government must put necessary measures and policies in place to salvage the industry. He is right. The textile industry was once the bride of the nation’s industrial sector. In its heyday, around the 1980s, it was acknowledged as third largest in Africa, with over 160 vibrant textile mills and over 500,000 direct and indirect jobs. By 1985, the number of textile mills had increased to about 180, engaging about one million workers. The country’s textile capacity accounted for 60 per cent in West Africa.

The administration of the CBN N220b intervention fund for MSMEs has also not gone down well with manufacturers. “There were lots of bureaucracy/bottlenecks when we wanted to access the CBN N220b intervention fund. We as manufacturers need our own bank,” one of the industrialists said lamented during the public session lecture of the 47th Annual General Meeting (AGM) of MAN Ikeja Branch, held on Thursday, October 16, 2014. At the AGM themed, ‘Creating a Vibrant Economy through Sustainable Entrepreneurial Development,’ the industrialist, who did not want to be mentioned, came down hard on BoI, describing it as “an arrangee bank” in reference to his argument that the bank allegedly only gives loans to politicians and friends of the bank.

In terms of access to loans, SMEs appear to be holding the short end of the stick, as they appear to face the greatest hurdle in accessing funds from BOI. Despite being acknowledged as major catalysts for wealth creation and poverty alleviation, The Nation learnt that uncoordinated business plans and poorly packaged projects are largely responsible for the difficulties experienced by SMEs in accessing the funds. There are other factors apart from poor access to funds though. Some of them include weak institutional support, unstable macro economics, complicated and unstructured legal framework/regulation, inadequate business information, infrastructure and business environment and human capital factors, among others.

According to experts, these factors, which militate against most SME operators’ quest to optimise their potential, explain why there is high mortality rate of SMEs in Nigeria. There are over 17 million SMEs in Nigeria, according to data from National Bureau of Statistics (NBS). Most of these SMEs in Nigeria, experts say, die within the first five years of existence, while another smaller percentage goes into extinction between the sixth and 10th year, with only five to 10 per cent surviving, thriving and growing into established corporate status. Yet, SMEs are said to account for over 90 per cent of enterprises in the world and are responsible for 50 to 60 per cent of employment, according to the United Nations Industrial Development Organization (UNIDO).

For Obiora Akabogu, legal practitioner and public affairs analyst, the high mortality rate of SMEs in Nigeria would have since been halted given the magnitude of special intervention funds targeted at the sector, which plays key role in employment generation. Unfortunately, BOI, he argued, has deviated from the original concept of the intervention funds, which was to provide financial assistance particularly to small scale industrialists. He accused BOI of giving loans to politicians without collateral. He said that the special intervention funds have become drain pipes for siphoning the nation’s scarce resources.

His words: “The implementation of the funds has not really been felt. Micro finance banks are even more popular with the masses because they are closer to the grassroots. It has become elitist in nature; it is not on ground. Outside Lagos and Abuja, BOI is as good as dead. It has deviated from the original concept. Only a total overhaul can bring it back of track. Besides, unless the Economic and Financial Crimes Commission (EFCC) beams its searchlight on the financial records of the bank, the bank will perpetually remain a sick child.” He added that despite the fact that the bank had been recapitalised several times in the past, it is still suffering the same fate of lack of capacity to deliver on its vision and mission.

The Director- General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, also noted that the biggest challenge to the economy especially for the SMEs is the challenge of accessing funds from banks. He regretted that SMEs can’t access loans, credits and other facilities from banks. He said some of them had to resort to Cooperative Societies, micro finance banks and family sources to raise funds. As he observed, “Cost of fund sometimes is as high as eight per cent, making access to credit a big challenge.

Beneficiaries speak

Despite the outcry by many business operators, there are however, some people who have given BOI thumbs up for its funding and capacity support. For instance, the Executive Chairman, Innoson Group, Chief lnnocent Chukwuma, admitted to having enjoyed BOI’s facilities for three different times for the production of household plastics ranging from plates, chairs, tables and tanks to pipes and plumbing parts, which has placed the company as the biggest manufacturer of plastics in the country.

He said in 2010, the company accessed a fourth facility for its diversification into automobile assembling plant, with the plastic arm producing almost all plastic components of the vehicles. According to him, his company, till date, has enjoyed four facilities from BOI, and has been able to maintain good debt service record on all the facilities. This made the company employ over 700 direct staff and 2,000 indirect workers. Hesaid though he initially asked for a facility of N100 million and was denied, he was rather given N80 million in machinery and equipment.

Chief Chukwuma is not alone. Chairman, Rumbu Sacks Nigeria Limited, Mr. Ibrahim Salisu Buhari also praised the single digit interest rate given to manufacturers, noting that it is not only convenient, but also easy to repay. He said the company grew from scratch 15 years ago to become the biggest producer of woven sacks and mats. “BOI improved our operations to the extent that we have been able to achieve an evolution of our production process from manual to advanced automation. Similarly, our company has been able to increase its workers from 231 in 2001 to 1,163 to date in direct and indirect employees,” he disclosed.

Same for the Managing Director of Nigeria Aluminium Limited, Mr. Iyiola Ishola, who admitted that their long standing relationship with BOI since 2005 paid off with the growth in earnings per share of the company’s customers.

BOI’s position

However, BOI says it is still on course. Its Managing Director, Mr. Rasheed Olaoluwa,, disclosed recently that the bank has so far disbursed about N692 billion loans to customers, created approximately one million jobs, and financed about 2, 000 projects. For instance, information on the bank’s website says that over 60 per cent of the CTG fund has been committed to 52 companies as at March, 2013. The bank cited the re-opening of United Nigeria Textiles Limited in Kaduna as one of the numerous positive impacts of the scheme.

BOI also said that a mid-term evaluation of the CTG industry commissioned by BOI/UNIDO to evaluate the impact of the scheme reveals that over 8,070 jobs had been saved through the intervention, while capacity utilisation for most beneficiaries increased from below 40 per cent to about 61 per cent. Besides, over 50 per cent of those making losses has started reporting profits.

BOI also pointed out that the N300b Power and Aviation Fund (PAIF), which aims atrefinancing of commercial banks’ exposures to companies in the power and aviation sectors, fast-track the development of the aviation sector by improving the terms of credit to Airlines establish new power plants especially in clusters, and provide leverage for additional private sector investments in the power and aviation sectors, has paid off. The bank said it has disbursed over N208.21b as at March 2013.

Total power generated by assisted projects is put at 747.7 Megawatts ?(MW), which represented about 18.7 per cent of the current power generation of about 4,000 MW. The scheme, BOI said, has also been able to leverage private investment into the power sector, and beneficiaries have been able to increase their investment in other assets or expanded their revenue base as a result of the lower debt obligations.

Olaoluwa also dispelled insinuations that accessing loans from the bank was cumbersome. Said he: “The way to access finance from BOI is very simple. We have a website: www.boing.com, we have a lot of information in that website, such as the sectors we support, the products and ways in which you can apply. He said there are three simple processes: the application form, questionnaire, and the need for customers to engage at the end of the day with the bank’s analysts.

“When you want to take a loan from BOI, it is important that as a promoter, you have a sound business model. The way we access business model at the bank is to ask you a few questions: First, the product you want to bring to the market; second, what is the target market (who are you going to sell the product to?) Thirdly, what stands your product out or what is your value proposition (why should anyone be interested in your product?) How is your product different from others in the market? Fourthly, which is more important, how are you going to deliver that value proposition to the target market,” he explained, adding that the bank has seven zones. Apart from its head office in Marina, Lagos, the bank is also present in Akure, Asaba, Enugu, Bauchi, Kaduna and Abuja.

While the controversy over perceived cumbersome process of accessing loans from BOI rages, Diamond Bank Plc’s Regional Manager, Ikeja, Benson Oraelosi, raised the critical issue of the role of MAN in the introduction and subsequent administration of the intervention funds. “How much role did MAN play when the Federal Government introduced the intervention funds targeted at the manufacturing sector,” he asked, pointing out that MAN should have been the conduit or intermediate between government and borrowers.

Oraelosi, presenting a paper titled, ‘Creating a Vibrant Economy through Sustainable Entrepreneurial Development,’ un-behalf of the bank’s former Group Managing Director, Dr. Alex Otti, at the MAN 47th AGM, said this would have reduced the rate of default by ascertaining the credibility of borrowers. He added that the rate of loan default in Nigeria is high, a position shared by BOI.

A fortnight ago, BOI blacklisted 24 loan defaulting companies that failed to repay loans granted them. At the occasion of the induction of 10 customers into its hall of fame, Olaoluwa said that the blacklisted companies were also involved in shady deals. According to him, BOI decided to name and shame the bad customers’ to help Nigerian banks to identify business people with no respect for integrity and purpose. He alleged that the 24 companies cloned and falsified documents and diverted loans to non-profitable ventures. “In addition to naming these companies, we have also exposed their directors and shareholders in order to put lending institutions and credit bureaus on notice,” he added.

On the other hand, Olaoluwa said that the 10 companies inducted into its hall of fame obtained credit facilities from the bank at least twice and fully repaid the loans thus, proving that integrity was not a function of size or of business environment. “As a bank, our hope and prayer is that we increase the number of customers in the hall of fame and minimise the blacklist,” he said, adding that the effect of any loan default was severe, with certain socio-economic consequences capable of defeating government’s objectives of financing the strategic sectors of the economy. The BOI boss pointed out that as a development bank, BOI derives its funding from government resources that are limited, finite and subject to competing demands.

MAN’s reaction

As far as MAN is concerned, its hands are tied with regards to high rate of loan default among members. Chairman, Ikeja branch of MAN, Prince Oba Okojie, argued that it is almost impossible for MAN as an association to stand or intermediate between government and borrowers. We can try, but there is a limit to what we can do,” he said, noting however, that “the inability of manufacturers to access funds with ease has led to closure of many factories, making our young people who would have been gainfully employed to contribute meaningfully to the growth of the economy idle and jobless and therefore, engage in all kinds of vices.”

Conclusion

Beyond the outcry by some manufacturers and business operators over lack of access to the funds, experts say that the intervention funds constitute only an interim measure. They argue that the funds translate to only a part of the fundamental changes needed to make the intended beneficiaries and the industrial sector competitive “While it provides a way forward in a financially arid operating climate, the equally critical issue of infrastructure should be taken into consideration. Otherwise, the loan beneficiaries may be frustrated midstream,” the Managing Director, Fruity Drinks Limited, Lagos, Mr. Livinus Okafor, said, for instance.

He noted that the problem of the SMEs is not so much about physical fund, but the provision of infrastructure that gulps the small fund available for business. He said as long as government neglects the provision of needed infrastructure such as electricity, motorable roads, water, raw materials and whatever makes operating environment possible, the fund would not do much for operators.

Mr. Yusuf noted that SMEs have great potential in terms of job creation and should be eagerly supported by the government and all the necessary agencies to see that the sector is robust. He encouraged the administering agencies, which include state governments, cooperative societies and other institutions to ensure that they get round the challenges of collateral, which has become an albatross for small scale industrialists in the country.